German entrepreneurs are often deeply disappointed; we are blocking economic growth with absurd regulations, says attorney Vojtěch Steininger.
Lidové noviny: Your law firm specializes in clients from German-speaking countries. Does your experience confirm the stereotype that Germans are precise and highly organized in their professional lives, while Czechs tend to be more creative?
Vojtěch Steininger: It really is true. In most German companies, employees have a clearly defined path for how to proceed with their work. Germans are usually thrown off by unexpected events, so everything is planned in advance. Their corporate processes are often designed around a way of thinking that is not, or is not meant to be, particularly creative, but is generally highly efficient. Czechs sometimes struggle with this because they are used to solving problems creatively—sometimes too creatively. Germans are often surprised by what Czechs are capable of coming up with, both in positive and negative ways.
LN: To what extent does this difference in mentality manifest itself in law?
VS: The German approach to law is less formalistic than the Czech one. On the other hand, German legal commentaries run to thousands upon thousands of pages in which legal scholars dissect even the smallest details of every theoretical aspect of a provision. You can find an answer to almost any question there, although I am not sure whether that is necessarily a better solution.
Czechs are more creative here as well. We do not have everything analyzed in such detail, and often we have to derive solutions from general principles and provisions. At the same time, especially in commentaries on the new Civil Code, we see that interpretation often ends where the first real problem begins. It is not easy to keep explaining to German clients that we have a new code and still do not really know what certain problematic provisions mean or how courts will interpret them. In Germany, the Civil Code from 1896 is still in force. It is hardly understandable to them that we have had four civil codes in the last hundred years.
LN: But didn’t the new Civil Code also bring a certain liberalization of legal relations between individuals? It seems far less attached to formal requirements.
VS: Absolutely. It brought us closer to the Western legal world. Although interpretative problems increased and legal certainty declined, the law became much more humane. Under the old code, many contracts were absolutely void due to formal defects, and nothing could be done about it. Under the new rules, contracts are generally considered valid rather than invalid, which has given lawyers greater flexibility.
We can focus more on the substance of a contract rather than on whether it will be declared valid or invalid for formal reasons. We may have to wait decades for stable judicial interpretations of some provisions, but that is an acceptable price to pay for having a sophisticated and “Western-style” legal system.
LN: What typical problems do Germans face when they want to do business in the Czech Republic?
VS: It depends on the type of investment. If they acquire a share in a company, they encounter one of the most pointless formalities imaginable—the requirement to apostille documents intended for use in another country.
Simply put, if a German has their signature notarized in Germany, that certification is not recognized in the Czech Republic. In addition to the notarization clause, the document must also bear an apostille—a special stamp or certification confirming that the notary who authenticated the signature is indeed a notary of that country. The same applies in reverse: Czech documents must also be apostilled for use in Germany. However, German authorities generally do not insist on this as strictly. Czech authorities, by contrast, are extremely rigorous. For example, they would never register information in the Commercial Register on the basis of a power of attorney signed in Germany if it lacks an apostille.
LN: How does this affect practice?
VS: It costs around €20 and can take a week or longer before a German court certifies via an apostille that a given notary is indeed registered as a notary in Germany. In the Czech Republic, apostilles are issued by the Ministry of Justice.
This literally inconveniences German investors doing business in the Czech Republic; it is a completely unnecessary step. The situation is paradoxical. Germany is our largest trading partner, yet among our neighboring countries it is the only one with which the Czech Republic has not concluded an agreement abolishing the apostille requirement. This is despite both countries being members of the EU, and despite the fact that we have such agreements with countries like Mongolia, Vietnam, and even North Korea.
So if you have your signature authenticated by a North Korean notary, you do not need an apostille. But if you do so in Germany, you must go through the lengthy process of obtaining an additional stamp.
Fortunately, from 2019 onward, apostilles were to be largely eliminated by an EU regulation. However, that does not change the fact that the Czech state has been complicating business activities for nearly thirty years since the Velvet Revolution.
LN: What other negative aspects of Czech law do German investors encounter?
VS: German investors often intend to build something in the Czech Republic, such as a factory. That brings us to the magical chapter of Czech law called building regulations.
These regulations are incomprehensibly complex and essentially dysfunctional. Germans are always hugely disappointed by them. There is excessive bureaucracy, long waiting periods, and everything is so complicated that investors often decide to build their factories somewhere else.
We do not compete with other countries only in terms of labor costs or tax rates, but also in terms of the competitiveness of our legal system. We are blocking our own economic growth with absurd regulations.
LN: Would you say that the Czech legal environment itself discourages German entrepreneurs?
VS: Not entirely. However, our legal system could certainly be more business-friendly. These are the same problems that have existed since the Revolution and still have not been resolved. No one does anything about them, and as a practicing lawyer I find that frustrating because we keep dealing with the same issues.
Sometimes people in the “West” still look at us as if we were living in the Middle Ages, and occasionally I think there is unfortunately a grain of truth in that. But that is not to say that some aspects of the German legal system are not a bit medieval as well. (laughs)
LN: What do you mean?
VS: Registering a newly established company in the Commercial Register is often more complicated and time-consuming in Germany than in the Czech Republic.
Once founders in the Czech Republic have all the necessary documents, a Czech notary can register the company directly in the Commercial Register, essentially immediately. In Germany, however, it depends on the speed of the registry court responsible for the company. Even after all required documents have been submitted, registration can take several weeks.
Few people appreciate how relatively well the Czech Commercial Register functions, with its five-day decision deadline. Many Western countries can only dream of that.
Another excellent feature is that the Czech Commercial Register and Land Registry are accessible online and largely free of charge. Nothing comparable exists in Germany. The Commercial Register is subject to fees, and if you want a land register extract, you must go to a notary or the competent court to obtain it.
Moreover, in Germany you can only obtain a land register extract if you demonstrate a legitimate interest—for example, as a prospective tenant who wants to verify that an apartment actually belongs to the person offering it for rent.
LN: Is it therefore more difficult to establish a company in Germany than in the Czech Republic?
VS: For a Czech person, definitely. Unfortunately, we are still often viewed as a suspicious nation from the East.
I was particularly surprised by what is required when opening a bank account. Recently, I opened an account at a Czech bank for a client from the Philippines; it took twenty-five minutes. In Germany, banks do not simply open a corporate account for you. Many banks conduct a personal interview about your business plan and only open the account if they conclude that your business has prospects and that you are trustworthy.
It can be a bigger ordeal than applying for a bank loan in the Czech Republic. But apart from a few toxic exceptions, there is no doubt that both the legal and business environment in Germany are far healthier than those in the Czech Republic.